Southern Copper (NYSE:SCCO) Will Pay A Larger Dividend Than Last Year At $1.00

The board of Southern Copper Corporation (NYSE:SCCO) has announced that it will be paying its dividend of $1.00 on the 23rd of August, an increased payment from last year's comparable dividend. This will take the annual payment to 4.1% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Southern Copper

Southern Copper Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

The next 12 months is set to see EPS grow by 6.7%. If the dividend continues on its recent course, the payout ratio in 12 months could be 105%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the dividend has gone from $3.71 total annually to $3.50. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Could Be Constrained

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Southern Copper has been growing its earnings per share at 25% a year over the past five years. Although earnings per share is up nicely Southern Copper is paying out 101% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Southern Copper's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Southern Copper's payments are rock solid. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Southern Copper has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.